Henry Ford, the Bootstrapper

Henry Ford was inarguably one of the best entrepreneurs the country (and possibly the world) has ever seen.

To wit, here’s Wikipedia’s stunning intro to Ford’s achievements:

His introduction of the Model T automobile revolutionized transportation and American industry.

As owner of the Ford Motor Company, he became one of the richest and best-known people in the world.

Celebrated as both a technological genius and a folk hero, Ford was the creative force behind an industry of unprecedented size and wealth that in only a few decades permanently changed the economic and social character of the United States.

He is credited with “Fordism”: mass production of inexpensive goods coupled with high wages for workers.

Ford had a global vision, with consumerism as the key to peace.

His intense commitment to systematically lowering costs resulted in many technical and business innovations, including a franchise system that put dealerships throughout most of North America and in major cities on six continents.

Ford left most of his vast wealth to the Ford Foundation but arranged for his family to control the company permanently.

But what Wikipedia doesn’t mention – and many people don’t know – is this:

Ford was the consummate bootstrapper

His biography, My Life and Work, is one of the best books on business ever written

If you know me, you know I love reading old books.

There’s nothing quite like viewing the past first-hand, through the lens of the people living in it at the time – people who wrote about their present. When reading new stories about the past, it’s so easy to slip into the habit of judging those ridiculously foresighted people from history, and how could they have ever believed that anyway? Like, duh.

Which is kryptonite to learning, because of course, our present will soon be the past, and people will think the same of us. Perspective, and humility, are necessary ingredients to becoming fully human and these days they are in short supply.

Umm, yeah. Old book rant over.

Here are a sample of some of my highlighted passages from just the first few chapters:

Banishing the Pleasant Things in Life

I think that we have already done too much toward banishing the pleasant things from life by thinking that there is some opposition between living and providing the means of living. We waste so much time and energy that we have little left over in which to enjoy ourselves.

1922 to today: ~100 years of Americans worshipping overwork. Has it ever been any worse than today?

The Whole Point

Power and machinery, money and goods, are useful only as they set us free to live.

Yes!

Skepticism

I have no quarrel with the general attitude of scoffing at new ideas. It is better to be skeptical of all new ideas and to insist upon being shown rather than to rush around in a continuous brainstorm after every new idea. Skepticism, if by that we mean cautiousness, is the balance wheel of civilization.

Rush around in a continuous brainstorm! The balance wheel of civilization!!

I ask you: what’s not to love about this down home, hard-as-nails pragmatism from a bazillionaire?

Signifying Nothing

We have passed through a period of fireworks of every description, and the making of a great many idealistic maps of progress. We did not get anywhere. It was a convention, not a march. Lovely things were said, but when we got home we found the furnace out.

Here he’s talking about radicals & reactionaries who want to either breakdown the capitalist system completely or freeze it in time, forever, to prevent any possible change whatsoever.

But if you ask me, this sounds a lot like any time we get together with our pals and talk about the amazing startups we’re going to build: Lovely things are said, but when we get home we find the furnace out.

Oooh, burn.

Or not burning, as the case may be.

Who Has Value?

The foundations of society are the men and means to grow things, to make things, and to carry things… Speculation in things already produced — that is not business. It is just more or less respectable graft.

Speculation? More or less respectable graft?

That doesn’t sound like the VC model at all. Not. at. all.

Shame on you for even thinking it.

Business: Like a Chicken

Profiteering is bad for business. The lack of necessity to hustle is bad for business. Business is never as healthy as when, like a chicken, it must do a certain amount of scratching for what it gets.

I want to favorite this so hard, scream it from the rooftops, tattoo it on my left ass cheek. (But not even my ass is big enough for this paragraph. C’est la vie.) This is one of the biggest reasons I – and, it seems, Ford – believe in self-funding through customer sales. Solve a problem, serve a need, get your just desserts.

Because:

The producer depends for his prosperity upon serving the people. He may get by for a while serving himself, but if he does, it will be purely accidental, and when the people wake up to the fact that they are not being served, the end of that producer is in sight.

And if that producer is divorced from having to please customers, insulated from having to create value and capture that value in the form of customer dollars – able to avoid selling entirely, in fact – you have a venture-backed startup.

Maybe I’m bull-whipping, dog-piling, and fireballing a dead horse here. But if you ask me, this is the heart of the matter.

Anything that gives you the ability to avoid the reality of serving your customers is bad for you and everyone else. If you succeed, then, it will be accidental.

Technofetishism

Rushing into manufacturing without being certain of the product is the unrecognized cause of many business failures. People seem to think that the big thing is the factory or the store or the financial backing or the management. The big thing is the product, and any hurry in getting into fabrication before designs are completed is just so much wasted time.

OMG.

Can you believe this book was written a century ago?

Henry Ford: Startup Oracle.

The Cutting Edge.

The principal part of a chisel is the cutting edge. If there is a single principle on which our business rests it is that. It makes no difference how finely made a chisel is or what splendid steel it has in it or how well it is forged—if it has no cutting edge it is not a chisel. It is just a piece of metal.

Business, like a chisel, has a distinct purpose.

Peter Drucker famously wrote that “The purpose of a business is to create and keep a customer.”

Henry Ford would say that “The purpose of a business is to serve.” He was a big believer in Service with a capital S – not customer service, but to serve the world, both customers and employees, by excellent products and an excellent working environment, fair wages, and an opportunity to better one’s self.

But if you read TechCrunch, HN, Business Insider, the Wall Street Journal, or the Economist – from anywhere on the low-to-stratospherically-quirked-highbrow spectrum – how often do you find this mentioned? The purpose? Just this side of never. It’s all about the handle, the splendid steel, the fine craftsmanship. Never the cutting edge. Henry Ford: Best Bootstrapper of All Time.

Last but not least, I thought I’d let a passage stand without commentary. It doesn’t need it.

Excerpted in order, with only one ramble bit skipped, directly from Henry Ford: My Life and Work…

The most surprising feature of business as it was conducted was the large attention given to finance and the small attention to service. That seemed to me to be reversing the natural process which is that the money should come as the result of work and not before the work…

The automobile business was not on what I would call an honest basis, to say nothing of being, from a manufacturing standpoint, on a scientific basis, but it was no worse than business in general. That was the period, it may be remembered, in which many corporations were being floated and financed. The bankers, who before then had confined themselves to the railroads, got into industry. My idea was then and still is that if a man did his work well, the price he would get for that work, the profits and all financial matters, would care for themselves and that a business ought to start small and build itself up and out of its earnings. If there are no earnings then that is a signal to the owner that he is wasting his time and does not belong in that business. I have never found it necessary to change those ideas, but I discovered that this simple formula of doing good work and getting paid for it was supposed to be slow for modern business. The plan at that time most in favor was to start off with the largest possible capitalization and then sell all the stock and all the bonds that could be sold. Whatever money happened to be left over after all the stock and bond-selling expenses and promoters, charges and all that, went grudgingly into the foundation of the business. A good business was not one that did good work and earned a fair profit. A good business was one that would give the opportunity for the floating of a large amount of stocks and bonds at high prices. It was the stocks and bonds, not the work, that mattered. I could not see how a new business or an old business could be expected to be able to charge into its product a great big bond interest and then sell the product at a fair price. I have never been able to see that.

I have never been able to understand on what theory the original investment of money can be charged against a business. Those men in business who call themselves financiers say that money is “worth” 6 per cent, or 5 per cent, or some other per cent, and that if a business has one hundred thousand dollars invested in it, the man who made the investment is entitled to charge an interest payment on the money, because, if instead of putting that money into the business he had put it into a savings bank or into certain securities, he could have a certain fixed return. Therefore they say that a proper charge against the operating expenses of a business is the interest on this money. This idea is at the root of many business failures and most service failures. Money is not worth a particular amount. As money it is not worth anything, for it will do nothing of itself. The only use of money is to buy tools to work with or the product of tools. Therefore money is worth what it will help you to produce or buy and no more.

If a man thinks that his money will earn 5 per cent, or 6 per cent, he ought to place it where he can get that return, but money placed in a business is not a charge on the business—or, rather, should not be. It ceases to be money and becomes, or should become, an engine of production, and it is therefore worth what it produces—and not a fixed sum according to some scale that has no bearing upon the particular business in which the money has been placed. Any return should come after it has produced, not before.

Business men believed that you could do anything by “financing” it. If it did not go through on the first financing then the idea was to “refinance.” The process of “refinancing” was simply the game of sending good money after bad. In the majority of cases the need of refinancing arises from bad management, and the effect of refinancing is simply to pay the poor managers to keep up their bad management a little longer. It is merely a postponement of the day of judgment. This makeshift of refinancing is a device of speculative financiers. Their money is no good to them unless they can connect it up with a place where real work is being done, and that they cannot do unless, somehow, that place is poorly managed. Thus, the speculative financiers delude themselves that they are putting their money out to use. They are not; they are putting it out to waste.

I determined absolutely that never would I join a company in which finance came before the work or in which bankers or financiers had a part. And further that, if there were no way to get started in the kind of business that I thought could be managed in the interest of the public, then I simply would not get started at all. For my own short experience, together with what I saw going on around me, was quite enough proof that business as a mere money-making game was not worth giving much thought to and was distinctly no place for a man who wanted to accomplish anything. Also it did not seem to me to be the way to make money. I have yet to have it demonstrated that it is the way. For the only foundation of real business is service.

Sounds pretty familiar, doesn’t it?

Except for the interest rates being so high… and the fact that VCs expect 10x return and not 5%, Ford puts his finger right on it and he could be writing today, about what we do.

Either Henry Ford is a time-traveling super startup spy… or nothing ever fucking changes, just every generation believes it came up with something new.

You can guess which scenario I’m putting my money on:

There is no “New New New Economy.” Same shit, different century.

Suffice to say, regarding the autobiography of this prescient business genius: